Games Workshop Group — FY24 profit estimates beaten

Games Workshop Group (LSE: GAW)

Last close As at 19/07/2024

GBP102.30

−60.00 (−0.58%)

Market capitalisation

GBP3,371m

More on this equity

Research: Consumer

Games Workshop Group — FY24 profit estimates beaten

Games Workshop Group’s FY24 trading update provided a nice surprise on the revenue side, broadly equally split between core and licensing, and an even nicer surprise for PBT, suggesting an improvement in gross margin. We have upgraded our FY24 estimates to be consistent with the indicated figures and marginally increase our estimates for FY25, which reverts to a 52-week period accounting period.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Games Workshop Group

FY24 profit estimates beaten

FY24 trading update

Consumer goods

21 June 2024

Price

£106.90

Market cap

£3,523m

Net cash (£m) at 30 November 2023 (excluding lease liabilities of £48.6m)

111.3

Shares in issue

33.0m

Free float

100%

Code

GAW

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.2

6.4

(0.4)

Rel (local)

10.2

(0.3)

(8.8)

52-week high/low

£117.00

£91.25

Business description

Games Workshop Group is a leading international specialist designer, manufacturer and multi-channel retailer of miniatures, scenery, artwork and fiction for tabletop miniature games set in its fantasy Warhammer worlds.

Next events

FY24 results

30 July 2024

H125 results

January 2025

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Games Workshop Group is a research client of Edison Investment Research Limited

Games Workshop Group’s FY24 trading update provided a nice surprise on the revenue side, broadly equally split between core and licensing, and an even nicer surprise for PBT, suggesting an improvement in gross margin. We have upgraded our FY24 estimates to be consistent with the indicated figures and marginally increase our estimates for FY25, which reverts to a 52-week period accounting period.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

05/22

414.8

158.1

394.6

235.0

27.1

2.2

05/23

470.8

171.6

411.8

415.0

26.0

3.9

05/24e

520.0

201.9

459.5

420.0

23.3

3.9

05/25e

534.5

198.4

451.1

420.0

23.7

3.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY24 ahead of expectations

The company has indicated that FY24’s (53-week) core revenue will be not less than £490m and licensing income will be £30m, which we believe is an all-time high, giving year-on-year growth rates of 10% and 18% respectively. Total group revenue of £520m was c £9m ahead of our prior estimate, roughly equally split between core and licensing. The surprise came at the profit level, with an indicated PBT not less than £200m. The indicated profit is almost c £14m ahead of our prior estimate of £186.2m using the company’s definition of PBT, despite £7m of incremental group profit share expenses. This implies a core operating margin c 3pp above our prior estimate of c 33%, and therefore a better gross margin than we had forecast.

Upgrades for FY24 and FY25

Ahead of publication of the full financial statement on 30 July, we have increased our FY24 estimates to be consistent with the indicated figures and increased our FY25 PBT estimate by 2% to c £197m, using the company’s definition. The year-on-year decline in PBT reflects: 1) a lower core gross margin due to product phasing; and 2) lower licensing income following a very good FY24, albeit we note there is limited visibility on this source of revenue and Games Workshop Group’s high operating margin of over 90% can swing profit estimates disproportionately. We have trimmed our FY25 dividend estimate so that it is stable versus FY24.

Valuation: Within historical range

The share price rightfully responded well to the positive trading update, having traded within a relatively narrow range since the start of CY24. On our new estimates, the prospective P/E multiple of 23.7x in FY25e remains above the average multiple of 18.9x since FY17, but lower than more recent peak multiples in the mid-20s. The company’s distribution policy also provides an attractive dividend yield of 3.9% in FY25e.

Exhibit 1: Financial summary

Year-end 31 May

£m

2022

2023

2024e

2025e

 

 

 

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

Revenue

 

 

414.8

470.8

520.0

534.5

- Core revenue

 

 

386.8

445.4

490.0

509.3

- Licensing revenue

 

 

28.0

25.4

30.0

25.2

Cost of sales

 

 

(127.4)

(149.2)

(149.5)

(163.0)

Gross profit

 

 

287.4

321.6

370.6

371.5

Operating expenses

 

 

(94.2)

(108.3)

(132.6)

(134.0)

EBITDA

 

 

193.2

213.3

238.0

237.5

Depreciation and amortisation

 

 

(36.1)

(43.1)

(38.6)

(41.0)

Reported operating profit

 

 

157.1

170.2

199.3

196.6

- Core operating profit

 

 

131.7

148.2

171.8

173.4

- Licensing operating profit

 

 

25.4

22.0

27.5

23.2

Finance income/(expense)

 

 

(0.6)

0.4

1.4

0.6

Reported PBT

 

 

156.5

170.6

200.8

197.2

Profit Before Tax (norm)

 

 

158.1

171.6

201.9

198.4

Income tax expense (includes exceptionals)

 

 

(28.1)

(35.9)

(50.2)

(49.3)

Reported net income

 

 

128.4

134.7

150.6

147.9

Adjusted net income (before share-based payments)

 

 

129.7

135.5

151.4

148.8

WASC (m)

 

 

32.813

32.881

32.933

32.964

Average Number of Shares Outstanding (m)

 

 

32.873

32.898

32.950

32.981

Reported EPS (p)

 

 

391.3

409.7

457.2

448.6

Reported diluted EPS (p)

 

 

390.6

409.4

457.0

448.4

EPS - normalised fully diluted (p)

 

 

394.6

411.8

459.5

451.1

DPS (p)

 

 

235.0

415.0

420.0

420.0

 

 

 

 

 

 

 

Gross margin

 

 

69.3%

68.3%

71.3%

69.5%

EBITDA margin (including licensing income)

 

 

46.6%

45.3%

45.8%

44.4%

Operating margin

 

 

37.9%

36.2%

38.3%

36.8%

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

 

55.0

55.7

57.7

59.4

Right-of-use assets

 

 

48.1

48.9

47.0

45.1

Goodwill

 

 

1.4

1.4

1.4

1.4

Intangible assets

 

 

25.6

21.2

24.7

28.1

Other non-current assets

 

 

37.2

25.6

25.6

25.6

Total non-current assets

 

 

167.3

152.8

156.4

159.6

Cash and equivalents

 

 

71.4

90.2

101.2

107.0

Inventories

 

 

38.4

33.0

33.9

35.6

Trade and other receivables

 

 

39.6

36.3

42.4

43.6

Other current assets

 

 

4.4

14.5

14.5

14.5

Total current assets

 

 

153.8

174.0

192.0

200.6

Trade and other payables

 

 

(33.5)

(37.0)

(45.1)

(46.6)

Borrowings

 

 

0.0

0.0

0.0

0.0

Leases

 

 

(9.2)

(9.9)

(9.9)

(9.9)

Other current liabilities

 

 

(1.9)

(1.3)

(1.3)

(1.3)

Total current liabilities

 

 

(44.6)

(48.2)

(56.3)

(57.8)

Borrowings

 

 

0.0

0.0

0.0

0.0

Leases

 

 

(39.7)

(40.0)

(37.6)

(34.6)

Other non-current liabilities

 

 

(2.1)

(3.0)

(3.0)

(3.0)

Total non-current liabilities

 

 

(41.8)

(43.0)

(40.6)

(37.6)

Net assets

 

 

234.7

235.6

251.6

264.8

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

Operating Cash Flow

 

 

157.1

170.2

199.3

196.6

Depreciation and amortisation

 

 

34.8

39.5

38.6

41.0

Impairments

 

 

1.3

3.6

0.0

0.0

Share-based payments

 

 

1.6

1.0

1.1

1.2

Other adjustments

 

 

0.3

(1.2)

0.0

0.0

Movements in working capital

 

 

(35.9)

18.6

1.1

(1.3)

Income taxes paid

 

 

(37.7)

(39.0)

(50.2)

(49.3)

Operating cash flow 2

 

 

121.5

192.7

189.9

188.2

Net capex and intangibles

 

 

(32.3)

(28.3)

(32.2)

(34.1)

Net interest

 

 

0.2

0.3

1.4

0.6

Net proceeds from issue of shares

 

 

1.8

2.6

2.6

2.6

Dividends paid

 

 

(93.5)

(136.5)

(138.3)

(138.4)

Other financing activities

 

 

(11.9)

(11.8)

(12.4)

(13.0)

Net cash flow

 

 

(14.2)

19.0

11.0

5.8

Opening cash and cash equivalents

 

 

85.2

71.4

90.2

101.2

Currency translation differences and other

 

 

0.4

(0.2)

0.0

0.0

Closing net (debt)/cash

 

 

71.4

90.2

101.2

107.0

Closing net cash including leases

 

 

22.5

40.3

53.7

62.5

Source: Games Workshop Group accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Games Workshop Group and prepared and issued by Edison, in consideration of a fee payable by Games Workshop Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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New Zealand

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United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Games Workshop Group and prepared and issued by Edison, in consideration of a fee payable by Games Workshop Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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